CIMB: TMI & Property Sector

Initiating coverage - TM International - Unleashing its potential
We begin coverage of TM International (TMI) with a NEUTRAL call as its share price largely reflects its potential and has limited upside to our SOP target price of RM8.00. Although TMI has compelling growth drivers in its collection of telco assets in South-East and South Asia, some of its key units such as TMI Bangladesh and Dialog Telekom face regulatory, political and industry challenges. Celcom, Excelcomindo (XL) and in the longer term, Dialog Telekom, are expected to drive the group's core EPS CAGR of 15% over the next three years. XL could also unlock up to RM0.68/share from the sale of its towers. We prefer TMI over SingTel for exposure to regional telcos though among the Malaysian telcos, we prefer DiGi for its capital management potential and growth.
Property sector update - A buyers' market again
After the election shocker, we warned of a fallout for the property sector. Two months on, it is clear that the after-shocks are still reverberating through the sector as political uncertainty persists and many potential buyers wait on the sidelines. A slew of negative newsflow on construction projects is putting a further damper on sentiment. Anecdotal evidence points to slow property sales, with many developers reporting take-up rates of less than 50%, way below what they enjoyed earlier. We think the cautious sentiment is likely to persist at least until Umno party elections in Dec. However, we are keeping our NEUTRAL weighting on the sector as property stocks have already been sold down aggressively. Our preferred picks remain Mah Sing and SP Setia.